Guam Form of Convertible Promissory Note, Preferred Stock
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How to fill out Form Of Convertible Promissory Note, Preferred Stock?
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FAQ
Convertible notes are promissory notes that serve an additional business purpose other than merely representing debt. Convertible notes include all of the terms of a vanilla promissory note, such as an interest rate and the pledge of underlying security (if applicable).
For the company, the convertible note allows for quick access to capital without having to negotiate financing terms such as percentage, price, and preferences over common stock holders (such as liquidation preference, anti-dilution provision, etc.).
A promissory note is a form of debt that companies and individuals sometimes use, like loans, to raise money. The issuer, through the notes, promises to return the buyer's funds (principal) and to make fixed interest payments to the buyer in exchange for borrowing the money.
Convertible notes are loans that (ideally) convert into the preferred stock that is sold in a subsequent equity round of investmet. The note might also cover contingencies, such as what happens if the company does not get to the investment by the maturity date of the loan, or if the company is sold prior to conversion.
The SAFE is legally a contract of the issuer, constituting an agreement to issue equity in the future at a purchase price paid in advance. It is not debt and, unlike a convertible promissory note, accrues no interest and has no maturity date.
Advantages of convertible notes for capital raising: Flexibility: Convertible notes provide flexibility for both the investor and the startup. Investors can convert their debt to equity if the company meets certain conditions, and startups can avoid setting an initial valuation until later rounds of funding.
Typical terms of convertible notes are: interest rate, maturity date, conversion provisions, a conversion discount, and a valuation cap.
A convertible note is a debt instrument often used by angel or seed investors looking to fund an early-stage startup that has not been valued explicitly. After more information becomes available to establish a reasonable value for the company, convertible note investors can convert the note into equity.